SEC Compliance with the Dodd-Frank Acton April 17th, 2011 at 2:12 pm
In response to increasing responsibilities under the Dodd-Frank Act and the prospect of reduced funding, the Securities and Exchange Commission suspended implementation of certain aspects of DFA. For example, DFA requires that the Commission create a new Investor Advisory Committee and new Offices of: Credit Ratings, Municipal Securities, Investor Advocate, and Women and Minority Inclusion. The Commission’s website states that these “activities are being deferred due to budget uncertainty.” The Commission has allowed mandatory deadlines to pass without adopting rules (e.g., DFA Section 765′s rules addressing conflicts of interest relating to swaps) and conducting studies (e.g., DFA Section 719′s study of algorithmic descriptions for derivatives).
On a different note, Congress required that the Commission provide its own findings, conclusions, and recommendations in a study on investment adviser and broker-dealer regulation, but the Commission delivered only a staff report (the cover page states that the Commission expresses “no view regarding the analysis, findings, or conclusions contained” therein). This limited two Republican Commissioners to criticizing the staff’s work rather than dissenting from SEC positions.
Finally, the SEC staff has declined to enforce at least one Dodd-Frank mandate in a no-action letter. This means that those relying on the letter are unlikely to be sued by the Commission, but it does not insulate them from private claims.
The recurring theme here is the SEC’s arguably illegal noncompliance with DFA’s express requirements. What legal remedies are available to supporters of DFA to force the Commission to obey the law? Or to states to step in and pick up the slack? To what extent are SEC positions creating a rift in the law between public and private obligations? How has the Commission been deciding which initiatives to undertake and which to postpone? And now that the budge impasse has been resolved, what will the Commission have to say on Monday about its priorities?